A Dynamic Model of Economic Growth in a Small Tourism Driven Economy
The paper studies the dynamics of economic growth caused by an increase in the growth rate of tourism demand. We develop a simple dynamic model of a small open economy, which is completely specialized in the production of tourism services (island economy model), populated by a large number of intertemporally optimizing agents, deriving utility from consuming an imported good. Tourism services are produced by means of a simple AK technology by using imported capital, its accumulation associated with adjustment costs. Moreover, the economy can lend or borrow at the international financial markets at the given world interest rate. Adjustments in the relative price of tourism services ensure market clearance for tourism services. The long-run growth rate of the economy is tied to the growth rate in tourism demand. An increase in the latter increases thus the economy’s long-run balanced growth rate. In contrast to the standard one-good small open economy endogenous growth model, where the economy is always on its balanced growth path, we show that there are transitional dynamics after an increase in the growth rate of tourism demand. In particular, the short-run growth rate of output rises gradually towards its higher long-run level, and the market price of tourism increases during transition. Thus, an increase in the growth of tourism demand, say, caused by higher economic growth abroad, leads to a boom in the small open economy and increasing terms of trade. Adjustments of the relative price of tourism services (i. e. the real exchange rate) can therefore not protect the economy from demand disturbances.
|Date of creation:||Mar 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chi-Chur Chao & Bharat R. Hazari & Jean-Pierre Laffargue & Pasquale M. Sgro & Eden S. H. Yu, 2006.
"Tourism, Dutch Disease And Welfare In An Open Dynamic Economy,"
The Japanese Economic Review,
Japanese Economic Association, vol. 57(4), pages 501-515.
- Chi-Chur Chao & Bharat R. Hazari & Jean-Pierre Laffargue & Pasquale M Sgro & Eden S. H. Yu, 2006. "Tourism, Dutch Disease and Welfare in an Open Dynamic Economy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00310516, HAL.
- Jean-Pierre Laffargue & Chi-Chur Chao & Bharat R. Hazari & Pasquale M Sgro & Eden S. H. Yu, 2006. "Tourism, Dutch Disease and Welfare in an Open Dynamic Economy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00645346, HAL.
- Robert J. Barro & Xavier Sala-I-Martin, 1992.
"Public Finance in Models of Economic Growth,"
Review of Economic Studies,
Oxford University Press, vol. 59(4), pages 645-661.
- Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
- Sala-I-Martin, X. & Barro, R.J., 1991. "Public Finance in Models of Economic Growth," Papers 640, Yale - Economic Growth Center.
- Robert J. Barro & Xavier Sala-i-Martin, 1990. "Public Finance in Models of Economic Growth," NBER Working Papers 3362, National Bureau of Economic Research, Inc.
- Jean-Jacques Nowak & Mondher Sahli & Pasquale M. Sgro, 2003.
"Tourism, Trade And Domestic Welfare,"
Pacific Economic Review,
Wiley Blackwell, vol. 8(3), pages 245-258, October.
- N. Gregory Mankiw & David Romer & David N. Weil, 1990.
"A Contribution to the Empirics of Economic Growth,"
NBER Working Papers
3541, National Bureau of Economic Research, Inc.
- Chao, Chi-Chur & Hazari, Bharat & Sgro, Pasquale, 2005. "Tourism and economic development in a cash-in-advance economy," Research in International Business and Finance, Elsevier, vol. 19(3), pages 365-373, September.
- M. Thea Sinclair, 1998. "Tourism and economic development: A survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(5), pages 1-51.
- Pasquale M. Sgro & Chi-Chur Chao & Bharat R. Hazari & Jean-Pierre Laffargue & Eden S. H. Yu, 2005.
"Tourism, Jobs, Capital Accumulation and the Economy: A Dynamic Analysis,"
2005.136, Fondazione Eni Enrico Mattei.
- Chi-Chur Chao & Bharat R. Hazari & Jean-Pierre Laffargue & Pasquale M. Sgro & Eden S. H. Yu, 2005. "Tourism, jobs, capital accumulation and the economy: A dynamic analysis," PSE Working Papers halshs-00590811, HAL.
- Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
- Noriko Ishikawa & Mototsugu Fukushige, 2007.
"Impacts of tourism and fiscal expenditure to remote islands: the case of the Amami islands in Japan,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 14(9), pages 661-666.
- Noriko Ishikawa & Mototsugu Fukushige, 2005. "Impacts of Tourism and Fiscal Expenditure to Remote Islands: The Case of the Amami Islands in Japan," Discussion Papers in Economics and Business 05-24, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Jordan Shan & Ken Wilson, 2001. "Causality between trade and tourism: empirical evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 8(4), pages 279-283.
- repec:oup:restud:v:59:y:1992:i:4:p:645-61 is not listed on IDEAS
- Jacint Balaguer & Manuel Cantavella-Jordá, 2000.
"Tourism As A Long-Run Economic Growth Factor: The Spanish Case,"
Working Papers. Serie EC
2000-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Jacint Balaguer & Manuel Cantavella-Jorda, 2002. "Tourism as a long-run economic growth factor: the Spanish case," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 877-884.
- Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
- Isabel Cortés_Jiménez & Manuela Pulina, 2006. "A further step into the ELGH and TLGH for Spain and Italy," Working Papers 2006.118, Fondazione Eni Enrico Mattei.
- Elias Soukiazis & Sara Proença, 2008. "Tourism as an alternative source of regional growth in Portugal: a panel data analysis at NUTS II and III levels," Portuguese Economic Journal, Springer, vol. 7(1), pages 43-61, April.
- Paul Evans, 1997. "How Fast Do Economies Converge?," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 219-225, May.
- Schubert, Stefan Franz & Brida, Juan Gabriel, 2008. "The Dynamic Effects of Subsidizing the Tourism Sector," MPRA Paper 16755, University Library of Munich, Germany.
- Lokman Gunduz & Abdulnasser Hatemi-J, 2005. "Is the tourism-led growth hypothesis valid for Turkey?," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 499-504.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:16737. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.